India to slash Iran oil imports in 2013/14

New Delhi, December 19, 2012

India plans a cut of 10 to 15 percent in imports of Iranian oil in the next fiscal year and will buy even less if Tehran does not lower prices to compensate for bigger borrowing costs as sanctions make banks reluctant to finance oil trade, sources said.

Iran's top Asian oil buyers -- China, India, Japan and South Korea -- have all cut imports after the United States and the European Union targeted oil sales with sanctions aimed at curbing Tehran's nuclear ambitions.

The sanctions have more than halved Iran's oil exports this year, costing Tehran up to $5 billion a month in lost revenue.

"Next year our import will be 10 percent to 15 percent less than this year," said a government official with direct knowledge of the matter, who declined to be identified as he is not authorised to speak to the media.

"If they don't cut prices, the decline will be substantial. Indian refiners have genuine problems with credit availability."

India, the world's fourth-biggest oil importer and Iran's second biggest client, relies on outside supplies for 80 percent of its oil needs, or about 3.5 million barrels per day (bpd).

Officials at state refiners said they had yet to receive any directive from the government to cut imports from Iran in the year beginning April 2013, when annual contracts start, but that they would cut imports anyway, because of high costs.

The push for cheaper prices is similar to a move by Chinese refiner Sinopec, Iran's biggest buyer, last year. As rising international pressure forced other buyers out of the market for Iranian oil, Sinopec strongarmed Iran into giving it better terms on contract oil deliveries.

The United States is looking for importers to make further cuts in purchases from Iran in 2013 to avoid sanctions, a State Department source said this month.

South Korea has already told the United States it will cut imports by about a fifth from a year earlier in the six months to May, government and industry sources said this month.

On Wednesday, the Petroleum Association of Japan said imports from Iran in 2013 were likely to be capped at 160,000 bpd. That would be down nearly 15 percent from around 188,000 bpd so far this year.

There is no clear indication yet on 2013 imports by China. Daily imports into China in the first ten months of 2012 were down 22 percent on the 2011 figure.

During the current fiscal -- and contract -- year, New Delhi had asked refiners to cut purchases from Iran by 15 percent. Refiners have instead bought more from Saudi Arabia, the top supplier, and Iraq, pushing Iran out of the number two slot.

TOO EXPENSIVE

Indian refiners say Iranian crude has become more expensive because sanctions force them to borrow at high domestic interest rates to finance purchases and face continuing volatility in the rupee against the dollar.

Banks have refused to issue short-term dollar credit, also known as buyers' credit, for Iranian oil imports because of the sanctions, officials at refiners said.

"Economically Iranian oil is not viable. My borrowing cost has gone up," said an official at a state-run refiner.

Starting Feb. 6, U.S. law will prevent Iran from bringing home oil export earnings, a measure that will "lock up" a substantial amount of Tehran's funds, U.S. officials have said.

That could affect the continuation of India's existing payment system with Iran, which settles 55 percent in euros through Turkey's Halkbank. The rest is settled in rupees through a local bank. – Reuters